Original Research Paper

External Trade and Economic Growth Relationship Under Trouble: Time Series Evidence from Palestine

Gaber H. Abugamea

Al-Azhar University-Gaza, Gaza Strip, Palestine, Economics Dep.

*Corresponding Author E-mail: gabernew@yahoo.com

Accepted 28th October, 2015

Abstract

The economies and trade of Palestinian territories (PTs) in the Gaza Strip and West Bank have undergone numerous shocks and instabilities over the past four decades. Palestinian External trade experienced numerous difficulties and in particular Israel imposing for restriction on Palestinian trade with the neighboring countries and the rest of the world as a whole. This study uses the cointegration and Granger causality tests to examine both the long run and short run relationships between economic growth, exports and imports of Palestine for the time period 1968-2012. The results, based on Vector Error Correction model show the existence of the long run relationship between imports and economic growth given exports stationary. Moreover, both exports and imports are considered main determinants of economic growth in Palestine. Granger causality test shows no causality among exports and imports and economic growth. Mainly, causality tests confirm VECM results that import cause changes on economic growth in the long run but not in the short run. These results guide towards a number of policies aiming a successful and sustained economic growth.